Understanding the means test for Chapter 7 bankruptcy

Understanding the means test for Chapter 7 bankruptcy

On Behalf of | Jun 28, 2024 | Bankruptcy

Filing for bankruptcy can be complex, especially when navigating legal terms like the means test. In Missouri, understanding this test is important for individuals considering Chapter 7 bankruptcy. 

What is the means test?

The Chapter 7 means test calculation determines if you qualify for Chapter 7 bankruptcy by assessing your income and expenses. It compares your average monthly income to the typical amount earned by similar-sized families.

How does the means test work?

If you earn less income than most people in your situation, you can qualify for Chapter 7 bankruptcy without any extra steps.

If your income is above the median, you need to do more calculations to figure out if you qualify. These calculations deduct certain allowed expenses from your income to determine your disposable income.

Documentation and preparation

Gathering accurate financial records is crucial for the means test. Ensure you have recent pay stubs, tax returns, and expense receipts to support your application.

Detailed documentation helps you calculate your income and expenses accurately. This preparation can streamline the process and prevent delays in your bankruptcy case.

Key considerations

The means test aims to stop people with higher incomes from filing for Chapter 7 bankruptcy. The means test calculations do not include certain expenses, such as taxes and secured debt payments. 

If you fail the means test, Chapter 13 bankruptcy may still be an option for restructuring your debts.

Navigating the means test requires a careful examination of your finances to determine your eligibility for bankruptcy. Understanding the means test might initially feel overwhelming, but it’s vital for making informed decisions about managing debt.